Fri Feb 2 2018
In January 2018, the federal government shut down for two days when Congress couldn’t agree on a bill to provide continuous funding. One of the affected institutions was the National Flood Insurance Program, or NFIP (a branch of FEMA). Luckily, funding was restored relatively quickly – but not for the long term. In fact, 2018 saw several close-calls with funding lapses for the program.
As of December 22, 2018, the government is shut down again because of funding disagreements over the US-Mexico border wall. However, the NFIP is still issuing and renewing policies during this shutdown.
There’s no guarantee for long-term funding for the program, which means it could find itself in another precarious situation in the near future.
So how might that affect homeowners who live in floodplains? Here’s an overview of what to expect the next time the NFIP temporarily loses funding.
The NFIP was created in 1968 to address the reality that private flood insurance options were falling short. Floods are the most common and costliest natural disaster in the country and private insurers were sometimes unable to pay out on claims. The NFIP was developed to offer a government-backed subsidized alternative.
Today, homes located in a floodplain bought with a mortgage are required to have flood insurance. Some lenders require that the insurance be through NFIP, making the organization an essential part of the home buying process in some parts of the country.
When the government shuts down and the NFIP goes unfunded, a few things happen:
Obviously, these are not desirable outcomes.
What’s really frustrating, though, is that even though there’s general agreement that we need the NFIP, most people think it should be reformed. The thing is, we can’t agree on how to do that. The general attitude seems to be, “Why should we fund something that we know doesn’t work?” This isn’t helpful when nobody can agree on what needs to happen to make it work better.
In 2012, the Biggert-Waters Act updated the NFIP, which was at the time more than $17 billion in debt. The update required homeowners to pay insurance rates that matched their risk exposure, based on actuarial tables. It eliminated certain subsidies and the grandfathering in of earlier, lower rates.
But in 2014, Congress passed the Homeowner Flood Insurance Affordability Act, which essentially delayed the reforms of Biggert-Waters and, rather than instating risk-based pricing, spread premium increases over all policyholders.
The Flood Insurance Market Parity and Modernization Act offers mostly technical updates to current law, but that bill didn’t make it to the Senate.
Bottom line: while it’s unlikely that lawmakers will agree on a comprehensive overhaul of the NFIP any time soon, it’s equally unlikely that they’ll let millions of homeowners go unprotected for the long term. If this is a matter you think needs more attention from Congress, consider contacting the people who represent you.
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